IN FOCUS: Renovation Loans

A simple loan process for simple repairs

Dec 04, 2014
Unforeseen events are bound to happen during the home renovation process, which is why it’s vital to have an accessible lender; and Five-Star Lender American Financial Resources (AFR) is setting that bar high.

The company’s diverse staff is able to answer questions outside the realm of loan origination, according to Damon Richardson, HomeStyle program specialist at AFR. “We have staff members with backgrounds in construction that can read between the lines," he said "We know what questions to ask in the beginning versus at the end.”

Richardson added that having former contractors on staff enables AFR to have a clearer understanding of what happens during home renovations. “We have a knowledgeable staff that can pick up the phone, talk to a contractor and say, ‘no you’re not building this for this price,’ or ‘that doesn’t make sense.”

He recommended mortgage professionals have a contingency budget set in place for borrowers for issues they may ran into during the home improvement process. “We make sure borrowers have all the money they are going to need, so going forward if they have an unforeseen issue, it’s taken care of.”

Time also plays a part in the 203k loan. Work needs to begin within 30 days of closing and completed within a three-month time period. “When we do a 203k renovation loan, we are handling the entire process inside within a specific period of time,” said David Margulies, executive vice president of global sales at AFR. “It’s very hard to control a third-party and when you have time constraints it’s best to do everything in-house.”

Below are AFR’s eight steps for 203K financing:

  • Borrower purchase offer is accepted or applies for refinance
  • Borrower obtains GC estimate(s) for repairs, rehabilitation, or upgrades
  • Appraiser forwards estimate in order to determine the “to be improved” value on both purchases and refinances
  • Loan amount requested based on purchase price + repair estimate, or on a refinance’s payoff amount + repair estimate, closing costs and prepaids
  • Loan processed, underwritten, closed as normal
  • Up to 50% of repair costs disbursed at closing, remainder put in escrow
  • Work is started within 30 days of closing and completed within three months
  • Any funds remaining in escrow will be applied to principal reduction of the loan

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